ESG Section

Status of Corporate Governance

1. Status of Corporate Governance

Basic approach to corporate governance

System of corporate governance

1. Board of Directors
   To implement decision-making from a wider range of viewpoints and monitor the execution of officers’ duties, as of the submission date of its Annual Securities Report the Company’s Board of Directors is composed of 12 individuals including three Outside Directors. As the highest decision-making body concerning execution and supervision of the Company’s business strategies and business plans, the Board of Directors holds regular Board of Directors meetings, as well as extraordinary Board of Directors meetings when necessary, and strives to respond quickly to the Company’s continually evolving business conditions, based on its governing provisions.
   In addition, the Company’s auditors and Corporate Officers (eight individuals excluding individuals serving concurrently as directors) also attend the Board of Directors.
2. Board of Corporate Auditors
   Kanamoto is a Company with a Board of Auditors. As of the date of submission of the Company’s Annual Securities Report, Board of Corporate Auditors is composed of six auditors (including four Outside Corporate Auditors), who perform their audit functions by regularly participating in meetings of the Board of Directors to audit the directors in the execution of their duties and maintain an environment that enables the appropriate sharing of opinions, including the exchange of information with managers, on a daily basis.
3. Corporate Officer system
   Kanamoto introduced a Corporate Officer system in 2001 to clarify responsibilities for execution of the Company’s businesses, enhance the top-down dissemination function for instructions and notices including management policies, and create and maintain a system for keeping employees well-informed about Company policies. Corporate Officers also make every effort to prepare precise business strategies that conform to the market environment and execute comprehensive management controls at each business division and affiliated company. As of the date of submission of the Annual Securities Report, the Corporate Officer system is composed of 16 individuals (eight of whom serve concurrently as directors).

Status of establishment of an internal controls system

1. System to ensure directors and employees comply with laws and the Articles of Incorporation in the execution of their duties
   Kanamoto Company, Ltd. and its subsidiaries have prepared Ethics Guidelines as part of the corporate philosophy, and use these as the Company standard for compliance. Under the Compliance Committee chaired by Kanamoto’s president, the Company has disseminated these Guidelines throughout the Company and established a system for compliance with laws and the Ethics Guidelines, and has prepared a handbook summarizing Kanamoto’s corporate philosophy and employee conduct standards, which it distributes to all executives and regular employees to increase compliance awareness. As a consultation and reporting system, Kanamoto also has set up in-house and external compliance hotlines, and created a system to resolve problems quickly when consultations or reports are received directly from employees and other individuals, while strictly observing confidentiality and ensuring that individuals who report problems do not suffer any disadvantages. Furthermore, the Company has established a Legal Section reporting directly to the president, to act as an advisory panel for important legal issues, and a system to enable the Company to give proper legal consideration to all decision making.
2. System for preserving and managing information concerning the execution of directors’ duties
   Kanamoto retains documents and various information in accordance with laws and ordinances and its internally established document administration regulations and document retention rules. Information is controlled in accordance with internal information management regulations and general data management rules, and personal data are administered in accordance with the Kanamoto Rules on Personal Data Protection and the Company’s personal data protection manual.
3. Rules and other systems concerning management of loss risk
   Kanamoto and its subsidiaries have established mechanisms to recognize and evaluate risks related to the business activities of each division, and prepared systems to avoid such risks. This has created a system capable of clarifying the authority and responsibilities of each division, supervising risk management conditions throughout the organization under the Board of Directors and discovering new risks. If unforeseen circumstances have occurred that will have a serious effect on the Company operations, or if there is concern such circumstances might occur, the Company and its subsidiaries will respond appropriately, and take measures to prevent a recurrence, based on its Emergency Response Manual (Contingency Plan).
4. System for ensuring efficient execution of directors’ duties
   In addition to its regular Board of Directors meetings, Kanamoto and its subsidiaries hold extraordinary Board of Directors meetings from time to time as necessary to decide important matters and to make flexible decisions concerning the execution and supervision of management strategies and the Company’s business plans. The Company's Board of Directors receives reports on important matters including the financial condition and other matters of the Company's subsidiaries. For its management plan, the Company establishes budgets for the next business fiscal year and medium-term future, which gives the managers of each division the Company’s overall objectives based on specific numerical targets. Each division sets division-wide objectives, and executes progress management and specific measures aimed at achieving its goals. Kanamoto has also introduced the Corporate Officer system to accelerate management decision-making and clarify supervisory authority and responsibility for plan execution, and each Corporate Officer is responsible for achieving the management plan approved by the Board of Directors. To respond quickly to the severe pace of change in its management environment, the Company has also shortened the directors’ term of office to one year.
5. System to ensure appropriate activities at Kanamoto and within the corporate group comprised of the parent company and subsidiaries
   To apply Kanamoto’s Ethics Guidelines correspondingly to each company in the Kanamoto Group, the Company has decided to enlarge the scope of the Compliance Committee and the consultation and reporting system to every group firm, to ensure the effectiveness of business activities is as extensive as possible.
   In addition, in accordance with the provisions of the Financial Instruments and Exchange Act, the Company and its affiliates maintain an excellent management environment, and work to strengthen company-wide internal controls, internal controls pertaining to settlement of accounts financial reports and operating process control activities, create internal control systems that enable the Company to make proper and effective assessments and conduct appropriate operations. Furthermore, under Kanamoto’s internal management system concerning financial reporting, each organization (individual) has affirmed the following roles.
   ◦Managers have the final responsibility for all of the organization’s activities, and 　prepare and implement internal controls based on this basic policy.
   ◦The Board of Directors has supervisory responsibility for the preparation and operation 　of the managers’ internal controls, and monitors and supervises managers to ensure 　the financial reporting and internal controls are executed properly.
   ◦The auditors monitor and verify the financial reporting and preparation and 　operation of the internal controls from an independent standpoint.
   ◦The Internal Control and Auditing Office objectively evaluates from an independent 　standpoint, the effectiveness of the internal controls related to financial reporting 　at Kanamoto and its affiliated companies on behalf of the Company’s managers in 　accordance with the audit rules, and when necessary makes proposals concerning 　improvements and corrections and reports to the managers and Board of Directors.
6. Matters concerning individuals requested by the auditors to assist with auditors’ activities
   Kanamoto currently does not employ any individuals to assist the auditors in their activities, but should it become necessary, the Company will hire audit staff. During a period the auditors specify, the management authority for the nominated employees will be transferred to the auditors, and the employees will not receive instructions or orders from the Company’s directors, thereby ensuring the effectiveness of instructions from auditors.
7. Matters related to the independence of employees in the preceding paragraph from directors
   Personnel matters for employees assigned to audit activities (appointments, transfers and evaluations) will have the consent of the auditors.
8. System for directors and employees to report to the auditors, other systems concerning reports to auditors, and other systems to ensure audits are performed effectively
   To perform audits of the directors, the Company’s auditors attend the meetings of the Board of Directors, and also attend important meetings and committees, in order to understand other important decisions and the circumstances of execution of the Company’s business activities. If the directors and employees of Kanamoto and its subsidiaries discover facts that might cause the Company considerable harm, they are to report immediately to the auditors. The standing auditors will circulate a report and request for managerial decision, and if necessary can request explanations from the directors and employees. Those who reported to the auditors shall not be treated unfavorably on the grounds of giving such report.
   The auditors also meet regularly with the president and representative director, to exchange opinions concerning issues the Company should address and important audit matters. After audits are completed, the Internal Control and Auditing Office promptly submits an Auditors’ Report concerning the audit results to the president and representative director and the auditors.
   The auditors and the Internal Control and Auditing Office also exchange information and cooperate in other ways with outside specialists, including the accounting auditors and the Company’s attorneys.
9. Matters regarding policies related to processing of expenses or liabilities arising from the execution of auditors' duties
   In regards to procedures for prepayment or reimbursement of expenses arising from execution of auditors' duties and processing of expenses or liabilities arising from execution of auditors' duties, such expenses or liabilities are accounted for upon requests made by the auditors, except where the requests cannot be considered necessary for the execution of auditors' duties.
10. System for eliminating antisocial forces
    In its Ethics Guidelines, Kanamoto has adopted a resolute stance and set forth provisions to block all transactions and relationships with antisocial forces, individuals and groups that threaten the order and safety of society and the stable operation of firms. In addition to gathering information from specialized external agencies and other sources at an internal division, the Company works to educate employees through programs such as internal training. Moreover, in an emergency the Company will cooperate with the police authorities having jurisdiction, its advising attorney and other institutions and individuals, to organizationally block and eliminate unwarranted demands from antisocial elements.

Implementation of system to secure the appropriateness of operations of the reporting company’s subsidiaries

The Company manages the Kanamoto Group companies in accordance with the “Rules For the Management and Guidance of Subsidiaries and Associates,” which mandate periodical reports by the Kanamoto Group companies with regard to their execution of activities, management performance and financial position, as well as the execution of audits by the Internal Control and Auditing Office as required, in order to secure the appropriateness of their operations.

Internal audit, audit by Corporate Auditors, and accounting audit

Internal audits are conducted by the Internal Control and Auditing Office, Corporate Auditors, and the accounting auditor working together and exchanging information. Internal audits are performed in accordance with the annual audit plan, and cover all aspects of operational activity. With regard to implementation, the Internal Control and Auditing Office is composed of five members and aims to visit every branch to conduct an audit once every three years, giving specific indications as to how to improve operations, as well as related instructions and guidance for rectifying issues. Over the past year, 56 branches have been audited. Furthermore, after the completion of the audit, the audit situation is reported promptly to management, Corporate Auditors, and related divisions, including the President and the Chairman as auditor’s reports.
The Company’s Board of Corporate Auditors is composed of six members, including four highly independent Outside Corporate Auditors, and audits the legality and appropriateness of the way that Directors execute their duties, not only for the Company itself, but for all Group companies. Corporate Auditors work to gain an understanding of management issues and important risks, etc. by attending meetings of the Board of Directors, conducting interviews with individual Directors, and reading important documents, as well as by visiting for audits and carrying out interviews at the various divisions of the Company, and its subsidiaries. In terms of accounting audits, the Company is audited by Ernst & Young ShinNihon LLC, in accordance with the Companies Act and the Financial Instruments and Exchange Act. Information on the certified public accountants that executed the accounting audit operations for the Company is provided below. 16 certified public accountants served as assistants in the accounting audit, in addition to nine others.

Outside Directors and Outside Corporate Auditors

The three Outside Directors of the Company are: the Hokkaido Block General Manager, Corporate Business Headquarters, ORIX Corporation; a Corporate Executive Vice President of ORIX Auto Corporation; the Chairperson, Social Medical Corporation Hokuyukai. ORIX Corporation is a major shareholder of the Company, and is involved in installment contracts, etc. with the Company. ORIX Auto Corporation is involved in operating leases, etc. with the Company, but neither of these cases do the transactions involve special business treatment. The four Outside Corporate Auditors are: an attorney at law affiliated with the Company’s advising attorney office; a former municipal official with extensive experience and knowledge in administration and management in municipal government; a standing Audit & Supervisory Board Member for one of the main banks of the Company; a certified public accountant with specialized business experience of accounting. Both Outside Directors and Outside Corporate Auditors provide, from their respective viewpoints, appropriate counseling and guidance on the execution of the business of the Company, and have no personal relationships with the offices of the Company. This excludes the holding of shares in the Company by Outside Directors and Outside Corporate Auditors. Holdings of shares in the Company by Outside Directors and Outside Corporate Auditors are as presented in “I. Company Information, 4. Status of the Reporting Company, (5) Status of Officers.”
The Company has established criteria and policies for independence in relation to the appointment of Outside Directors. In addition, when appointing Outside Corporate Auditors, the Company takes into account the standards etc. for independence of independent officers set out by the Tokyo Stock Exchange, and has designated three Outside Directors and four Outside Corporate Auditors as independent officers.

Remuneration, etc. for officers

1. Total amount of remuneration, etc. for each category of officer, total amount for each type of remuneration, etc., and number of eligible officers
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Category of officera	Total amount of remuneration, etc.	Basic remuneration	Number of eligible officers
Directors (excluding Outside Directors)	¥113 million	¥113 million	11
Corporate Auditors (excluding Outside Corporate Auditors)	¥23 million	¥23 million	2
Outside officers	¥5 million	¥5 million	5
Total	¥142 million	¥142 million	18

2. In addition to the above, ¥117 million in employee salaries (including bonuses) is paid to the eight persons who are both Directors and employees.
3. The Company has not prescribed a policy for determining the amount of remuneration, etc. for officers, or the method of calculation for the same.

Exemption of Directors and Corporate Auditors from liability

The Company’s Articles of Incorporation make provision to the effect that, pursuant to the provisions of Article 426, paragraph 1 of the Companies Act, the Company may, by resolution of the Board of Directors, exempt to the extent permitted by laws and regulations a Director (including a person who was formerly a Director), or a Corporate Auditor (including a person who was formerly a Corporate Auditor), from his/her liability for damages arising from behavior in relation to Article 423, paragraph 1 of the same Act. The aim of this provision is to put in place an environment in which the Directors and Corporate Auditors are able to sufficiently demonstrate their capabilities in the course of fulfilling their duties, and to play the role expected of them.

Summary of details of limited liability agreement

Pursuant to Article 427, paragraph 1 of the Companies Act, the Company has entered into an agreement with its Outside Directors and Outside Corporate Auditors to limit their liability for damages under Article 423, paragraph 1 of the same Act. The maximum amount of liability for damages under this agreement, for both Outside Directors and Outside Corporate Auditors, shall be the liability amount provided for under laws and regulations. This limitation of liability shall be recognized only in the circumstances where the Outside Director or Outside Corporate Auditor has acted in good faith and without gross negligence in the performance of the duties that gave rise to the liability.

Fixed number of Directors

The Articles of Incorporation of the Company make provision to the effect that there shall be no more than 20 Directors.

Requirements for resolutions to appoint Directors

The Articles of Incorporation of the Company make provision to the effect that resolutions on the appointment of a Director shall be made by a majority of the votes of the shareholders present at a meeting where shareholders holding at least one-third of the voting rights of the shareholders entitled to exercise their votes at such meetings are present. In addition, the Articles of Incorporation provide that resolutions for the appointment of Directors shall not be conducted by cumulative voting.

Organizational body to determine dividends of surplus, etc.

The Articles of Incorporation of the Company make provision to the effect that, unless otherwise provided for by laws and regulations, the Company shall, by resolution of the Board of Directors, and without obtaining a resolution at a general meeting of shareholders, determine dividends of surplus, etc. set out in the items of Article 459, paragraph 1 of the Companies Act. The aim is to enable flexibility in regard to return of profit to shareholders by giving the Board of Directors the authority for dividends of surplus, etc.

Acquisition of treasury shares

The Articles of Incorporation of the Company make provision to the effect that treasury shares may be acquired by means of market transactions, etc., based on a resolution by the Board of Directors pursuant to Article 165, paragraph 2 of the Companies Act, so as to enable the Company to flexibly implement management measures, such as financial measures, in response to changes in business conditions.

Special requirements for general meeting of shareholders resolutions

The Articles of Incorporation of the Company make provision to the effect that, with regard to special requirements for general meeting of shareholders resolutions, pursuant to Article 309, paragraph 2 of the Companies Act, such resolutions shall be made by at least two-thirds of the votes of the shareholders present at the meeting where the shareholders holding at least one-third of the voting rights of the shareholders entitled to exercise their votes at such meetings are present. The aim of the above is to enable the smooth management of the general meeting of shareholders by relaxing the quorum required for special requirements at such meetings.

Details, etc. of audit fees

Details of fees for certified public accountant audits, etc.

Details of other important remuneration

(Fiscal year ended October 31, 2017) and (Fiscal year ended October 31, 2018)
There are no such matters.

Details of non-audit services by certified public accountant audits, etc. for the reporting company

(Fiscal year ended October 31, 2017)
With regard to details of non-audit services for which subsidiaries of the Company pay remuneration for certified public accountant audits, etc., in terms of operations other than those in the Certified Public Accountants Act, Article 2, paragraph 1, agreed operations were outsourced, and payment was provided in consideration for the same.

(Fiscal year ended October 31, 2018)
With regard to details of non-audit operations for which the Company pays remuneration for certified public accountant audits, etc., in terms of operations other than those in the Certified Public Accountants Act, Article 2, paragraph 1, agreed operations were outsourced, and payment was provided in consideration for the same.

Policy on determining audit fees

There are no applicable items, but they are determined after taking into account the size of the business, the special features of the business, and audit time, etc., and after obtaining the approval of the Board of Corporate Auditors.

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